The Tax Ombudsman opened a review into the ATO's use of director penalty notices in September 2026. The number that prompted it is worth sitting with: more than 84,000 DPNs issued to directors of roughly 64,000 companies in 2024–25 — a 136% increase year on year.
ATO debt collection remains the highest-volume category of complaint the Ombudsman receives, and CPA Australia has welcomed the independent scrutiny as essential.
A review is worth having. But it will take months, and it will not change the mechanics for any director who receives a notice between now and then. The practical lesson for practices is older and much simpler than the review, and it is the one worth acting on this week.
What a DPN actually does
A director penalty notice makes a director personally liable for three categories of company liability:
- PAYG withholding
- GST
- Superannuation guarantee charge (SGC)
Personally liable means exactly that. The corporate veil does not help. The debt attaches to the individual, and the ATO can pursue it through garnishee notices, offsetting the director's own tax refunds, or civil proceedings.
What surprises people — including, in our experience, some directors who have been in business for twenty years — is that the notice is not the beginning of the process. It is close to the end of it.
The pivot is lodgement, not payment
There are two kinds of DPN, and the difference between them is the difference between a company that can be restructured and a director whose house is exposed.
A non-lockdown DPN — the 21-day notice. This is issued where the company reported its liabilities on time, or close enough to it, but did not pay them. The director has 21 days from the date of the notice to do one of a small number of things: pay the debt, appoint a voluntary administrator, appoint a small business restructuring practitioner, or place the company into liquidation. Take one of those steps inside 21 days and the penalty is remitted.
A lockdown DPN. This is issued where the company did not report within the required window. Here the director is automatically personally liable, and — this is the part that matters — appointing an administrator or liquidating the company does not remit it. There is no 21-day escape hatch. The only remaining route is paying the debt.
Insolvency practitioners describe the distinction in the same terms: the company's lodgement history, not its bank balance, determines which notice arrives.
So the decision that determines a director's personal exposure is made months before the notice — by whoever did or did not lodge the BAS.
The window is not the same for every liability
This is the detail that gets missed, and it is the one worth putting in front of clients.
| Liability | Reporting window for non-lockdown treatment |
|---|---|
| PAYG withholding | Up to 3 months after the due date |
| GST | Up to 3 months after the due date |
| Superannuation guarantee charge | By the due date. No grace period. |
PAYG withholding and GST are forgiving in a narrow, specific way: report them within three months of the due date and the director still gets the 21-day notice, with its options intact. Miss that window and the amount becomes a lockdown amount.
SGC is not forgiving at all. Reported late — by any margin — it is treated as a lockdown amount. A company that is three weeks behind on an SGC statement is in a materially worse position than the same company three weeks behind on its BAS, and almost nobody outside the profession knows that.
What this means for a practice
The uncomfortable implication of the lodgement pivot is that a client who cannot pay is often better served by lodging than by going quiet. That runs against instinct. A director staring at a liability they cannot fund frequently stops lodging, on a half-formed theory that not filing buys time.
It does the opposite. It converts a recoverable position into an unrecoverable one.
Three things follow for a practice with company clients:
Keep clients lodged, even when they cannot pay. This is the single highest-value thing you can do for a director in distress, and it costs nothing but the lodgement. Lodging without paying leaves every option open. Not lodging closes them.
Know which clients are drifting before the ATO does. Under Single Touch Payroll and activity statement reporting, the ATO has close to real-time visibility of what a company owes. If a client is three months behind, the ATO knows. The question is whether you do.
Treat an SGC obligation differently from a BAS obligation. They do not carry the same risk profile, and a client who thinks "I'm a bit behind on everything" is not distinguishing between a position with a 21-day remedy and one without.
Where the review might go
The Ombudsman is taking submissions from people affected by DPNs. If you have clients who received notices in circumstances that looked procedurally unfair — notices sent to superseded ASIC addresses, for instance, where the 21 days expired before the director ever saw the letter — that is precisely the material the review exists to gather.
What the review is unlikely to change is the lodgement pivot itself. That is in the legislation, not in ATO practice, and an Ombudsman review examines administration rather than rewriting law.
The honest constraint
None of the above requires software. It requires knowing, on any given week, which of your clients have unlodged activity statements — and that is usually a knowledge problem rather than a systems one.
Where it becomes a systems problem is at scale. A practice carrying thirty or fifty company clients cannot hold that picture in someone's head, and the clients most likely to drift are also the ones least likely to send you their bank statements without being asked several times.
That is the part worth automating: not the lodgement decision, which is yours, but the chase that precedes it. ReconLink reads the PDF, CSV and Excel statements Australian banks actually produce, codes around 99% of lines before you look at them, and emails clients for what is missing without you writing the email. Every coded line shows the rule it used, so the judgement — and the signature on the lodgement — stays with the registered agent.
$99 a month, ex GST. Unlimited clients, unlimited seats. Thirty days free, no card.
Frequently asked questions
How long does a director have to respond to a DPN?
Twenty-one days from the date of the notice, not from the date it is received. Because notices are sent to the director's address on the ASIC register, a director whose ASIC details are out of date can lose most or all of that period before they know a notice exists. Keeping ASIC records current is a genuine risk control, not administrative tidiness.
Can a director avoid a lockdown DPN by liquidating the company?
No. That is the defining feature of a lockdown notice. Appointing an administrator, appointing a small business restructuring practitioner, or liquidating the company will not remit the penalty. Those steps only work against a non-lockdown notice, and only within the 21 days.
Does lodging a BAS without paying it make things worse?
For DPN purposes, no — it makes them better. Reporting within the required window is what preserves non-lockdown treatment and keeps the director's options open. The debt still exists and general interest charge still accrues, but the director retains the ability to remit the penalty by dealing with the company.
Which liabilities can a DPN cover?
PAYG withholding, GST, and the superannuation guarantee charge. Note that the reporting windows differ: PAYGW and GST allow up to three months after the due date for non-lockdown treatment, while SGC must be reported by the due date.
Is the Tax Ombudsman review likely to pause DPN activity?
Nothing in the review suggests a pause. It examines how the ATO uses and administers DPNs and looks for opportunities to improve that approach. Directors and their advisers should assume notices continue to issue on current settings while it runs.
The short version
The Ombudsman review is worth watching, and worth making a submission to if you have clients who were treated unfairly. But it will not help a director who stops lodging next month.
The thing that decides whether a director keeps their options is whether the company reported — on time for SGC, within three months for PAYG withholding and GST. Payment can be negotiated. Lodgement cannot be undone after the window closes.
Keep your clients lodged.